Moving from Canada to Hong Kong: Canadian Tax and the Treaty

Moving (or moving back) to Hong Kong from Canada: when does Canadian tax residency end?

Canadian tax residency usually ends on the latest of the day you leave, the day your spouse or dependants leave, and the day you become resident in Hong Kong, provided you have cut your significant residential ties. The CRA treats three ties as significant: a home in Canada, a spouse or common-law partner, and dependants (CRA Folio S5-F1-C1, ¶1.10–1.11, 1.22). Secondary ties, such as Canadian bank accounts, a car or a provincial health card, are weighed together. Keep a significant tie and Canada can still tax your worldwide income, wherever you live. Whether your ties are cut is covered in Canadian tax residency, and the exact date in the date you become a non-resident of Canada.

From that date you are an emigrant. Most property you own is treated as sold at fair market value, and your departure-year return reports your world income up to the departure date; after that, Canada taxes only certain Canadian-source income. The steps are in Leaving Canada.

A move to Hong Kong is not simple when:

• you keep a home in Canada, or your spouse or children stay;
• you hold a Canadian corporation, a rental, or large RRSP or RRIF balances;
• you spend long stretches in both places, so both could claim you;
• you hold investments with large gains, so the departure tax is real money;
• you keep a Canadian job, clients or a sole proprietorship after you move.

Gather: your move date; a day count in Hong Kong by year of assessment; your passports and Hong Kong permanent identity card; leases or deeds for any home in either place; what happens to your Canadian home; a list of every account and investment with values on the departure date; and your RRSP, RRIF and pension amounts.

Does Canada have a tax treaty with Hong Kong?

Yes. Canada and Hong Kong signed a comprehensive income tax agreement, and Finance Canada lists it among the tax treaties in force. On the Canadian side it covers taxes under the federal Income Tax Act; on the Hong Kong side, taxes under the Inland Revenue Ordinance (agreement, Article 2).

The parts that matter when you move:

Mainland China is covered by a different treaty. If you are moving there instead, see moving back to China.

When are you a Hong Kong resident under the agreement?

Under Article 4(1)(a), an individual is a Hong Kong resident for the agreement if they ordinarily reside in Hong Kong, or stay there more than 180 days in a year of assessment, or more than 300 days in two consecutive years of assessment, one of which is the year in question (agreement).

The day tests are a trap for frequent visitors. A Canadian resident who spends more than 180 days in Hong Kong can become a Hong Kong resident for the agreement while still being a Canadian resident under Canadian law. That is a dual resident, and the tie-breaker below decides.

The CRA starts from the view that you are not a treaty resident of the other country. The burden is on you to show it (Folio S5-F1-C1, ¶1.43). Keep records of where you lived and your days in each place.

If Canada and Hong Kong both claim you, how does the tie-breaker decide?

Article 4(2) runs the tests in order and stops at the first one that points to one place:

Right of abode is not citizenship. If you have both Hong Kong right of abode and Canadian citizenship, step 4 points both ways and the case goes to the two tax authorities. Steps 1 to 3 come first, so it reaches step 4 only if they do not decide it.

If the tie-breaker makes you resident in Hong Kong, section 250(5) of the Income Tax Act deems you not resident in Canada for all of the Act, and the departure rules apply from that time (Folio S5-F1-C1, ¶1.37–1.38). You can ask the CRA for its view; see asking the CRA to decide your residency.

What departure tax applies, and can you elect a stepped-up cost for Hong Kong?

On leaving, Canada treats most property, other than Canadian real estate and registered plans such as RRSPs, RRIFs and TFSAs, as sold at fair market value, and you report the gain on your departure-year return (CRA). The forms, exceptions and payment deferral are in Leaving Canada, and a worked calculation is in departure tax calculation example.

Article 13(6) of the agreement adds an election for the Hong Kong side. If Canada taxes you on a deemed sale when you leave and you become a Hong Kong resident, you can elect to be treated in Hong Kong as if you had sold and bought back the property just before arriving. The deemed price is the lesser of the departure value and the amount you elect, when you later sell, as your Canadian proceeds for the deemed sale. The election does not cover property whose gain Hong Kong could already tax, or real property in a third place (agreement).

How much the election is worth depends on how Hong Kong taxes the sale, which is outside this page.

How much does Canada withhold on dividends, interest, pensions, CPP and OAS paid to you in Hong Kong?

Once you are a non-resident, Canada withholds tax at source on most Canadian income paid to you. The domestic rate is 25% (Income Tax Act, section 212); the agreement lowers it for dividends and some interest.

Your bank or broker applies a treaty rate only after you give it Form NR301; see Canadian bank and brokerage accounts after leaving. Rent from a Canadian property has its own rules: see non-resident landlords.

Why do Canadian pensions, RRSP and RRIF payments keep the full Canadian rate?

The agreement sets no cap on Canadian pensions. Article 17 says pensions, including lump sums, arising in a Party for past employment may be taxed in that Party under its own law. Other income from Canadian sources, under Article 20(2), may also be taxed in Canada under Canadian law (agreement). So Canada's domestic rate stays in place, and Service Canada's table shows 25% on CPP, QPP and OAS for countries it does not list with a lower rate; Hong Kong is not listed (Service Canada).

Some pension and RRSP income can qualify for a lower figure through a section 217 return; see non-resident returns for pension and RRSP income. Whether to collapse the RRSP before or after you leave is covered in cashing out an RRSP before or after leaving.

Can you get OAS while living in Hong Kong?

Yes, if you lived in Canada at least 20 years after age 18. You must have been a Canadian citizen or legal resident on the day before you left (Service Canada). With fewer than 20 years, OAS stops once you have been outside Canada for six months after the month you left, and restarts when you come back to live (Old Age Security Act, section 9). The CPP retirement pension is payable abroad with at least one valid contribution.

Canada has no social security agreement with Hong Kong, so years in Hong Kong cannot count toward the 20 years (Service Canada). The Guaranteed Income Supplement stops after six months abroad.

The OAS recovery tax can also apply. Where non-resident tax on Canadian pensions is 25% or more, as it is for Hong Kong, you file an OAS Return of Income by April 30 each year; Hong Kong is not on the CRA's list of places whose residents are excused (CRA: OAS Return of Income). If the CRA does not get it, OAS payments stop from July (Service Canada). Recovery starts at 15% of net world income above $95,323.

What happens if you move back to Canada later?

When you become resident in Canada again, you are treated as buying most of your property at its value on arrival (Income Tax Act, section 128.1). If you return still owning property that was deemed sold when you left, an election may reduce or undo that departure gain; see moving back to Canada after paying departure tax. The return itself is covered in returning to Canada after years abroad.

Moving back and forth makes the residence question harder each time. Keep the day counts and records for every year in both places.

Example

Figures are in Canadian dollars and illustrative.

A family moves to Hong Kong and sells the Canadian home

A couple moves to Hong Kong with both children and sells their Vancouver home before leaving. No home, spouse or dependants stay in Canada, so their residency generally ends on the move date, unless secondary ties say otherwise. A C$400,000 brokerage account with a C$100,000 accrued gain is treated as sold; they report the gain on their final return and file T1161. If each elects under Article 13(6), Hong Kong treats the shares as bought at departure value; whether that matters depends on how Hong Kong would tax a later sale. Later Canadian dividends of C$6,000 a year have 15% withheld, C$900, once the broker has their NR301.

A returnee with homes in both places

A Canadian citizen with Hong Kong right of abode keeps a rented-out Richmond condo and an empty family flat in Kowloon. The condo is rented to others, so it may not be a home available to her. If only the flat is, she is resident in Hong Kong at step 1. If both count, vital interests decide, then habitual abode. If those still tie, she has both Hong Kong right of abode and Canadian citizenship, so that test points both ways and the two tax authorities settle it.

A retiree draws a RRIF in Hong Kong

A retiree living in Hong Kong takes C$30,000 a year from a RRIF. The agreement leaves this to Canadian law, so Canada withholds 25%, C$7,500. A section 217 return, filed within six months after the year end, may lower the Canadian tax; personal credits are allowed only if all or substantially all of his world income is from Canada.

Different for you?

• Your spouse or children stay in Canada: you may still be resident. See family stays in Canada while you work abroad.
• You want the CRA's opinion on your status: see asking the CRA to decide your residency.
• You keep a Canadian corporation: its residence, your pay and your dividends all change when you leave. See close or keep your corporation when leaving Canada and cross-border tax help.
• You keep working for a Canadian employer or Canadian clients: see non-resident Canadian returns and Canadian clients after moving abroad.
• You still want to add to a TFSA or RRSP, or you get the Canada child benefit: see contributing to an RRSP or TFSA after leaving Canada and benefits after leaving Canada.
• You rent out or sell your Canadian home: see non-resident landlords and selling your home after leaving Canada.
• You are going to Taiwan instead: see moving from Canada to Taiwan.
• Both countries claim you, you have large gains on departure, or you missed a departure year's filings: the tie-breaker, the departure return and the Article 13(6) election all turn on records from the year you left. See cross-border tax help.